All posts in category Budget 2010

The 2010-11 budget is great news for renewable energy, and in particular solar energy, in India. In November of last year, the Government of India took a major stride forward in driving sustainable development with the announcement of the National Solar Mission targeting 20,000MW of installed solar power by 2022. But the fact that they’ve now included it in the budget is a critical step.

While the NSM set the vision for solar in India, the Central Electricity Regulatory Commission’s tariff order laid out the details. These guidelines further strengthened the case for investing in the Indian solar sector by setting preferential feed-in-tariffs and declaring long term (25 year) power purchase agreements.

However, despite these important declarations, one of the common responses we continued to get from international investors when discussing the Indian solar sector is “Show me the money.” These groups want to see program funding before they commit capital. Well, now we can show it to them; in support of the NSM, the budget for the Ministry of New and Renewable Energy (the administrating entity) has been increased by 61 percent from Rs. 620 crore in 2009-10 to Rs. 1,000 crore in 2010-11.

The first lesson every entrepreneur must take to heart when aspiring to do business in India is the need to adapt to the unique pace and protocol of the Indian market. What works great in the U.S., the U.K., or any other part of the world, can be ineffective or even offensive in an Indian context. This is not say that NRIs should not leverage their skills obtained from working abroad; our international finance and entrepreneurial experience has been crucial to establishing and maintaining our market leadership position. However, we learned early on that if you want to play in the Indian landscape, you better come with an Indian business model. Anything less and you will not even be offered tea in your meetings. In that case, you may leave with your stomach intact but your business plans in the toilet.

“This Budget belongs to ‘Aam Aadmi’. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. I have placed my faith in the hands of the people who, I know, can be depended upon to rise to any occasion in national interest. I have placed my faith in the collective conscience of the nation that can be touched to scale undreamt of heights in the coming years.”

While there are plenty of schemes and sops for farmer and agriculturists – over $25 billion, about 10% of the budget, has been allocated to various schemes for rural development – there’s not much that is enthusing for entrepreneurs and investors. In his second budget after a conclusive election victory, the Minister has continued to reward his party’s core constituency and vote bank, not necessarily in ways that would actually empower or ameliorate them.

Inderpreet Wadhwa, CEO of Azure Power, a solar power startup that we profiled recently, weighed in with his quick take on the solar initiatives the Indian government has laid out in the fiscal 2010-2011 budget.

Wadha says:

The setting up of the Clean Energy Fund is a good thing for the industry as this will help in more Research and Development. This will help set the ground for better technologies

It is predictable that the government will announce sops to the vote banks, and the only thing that has changed is that the vote banks are inexorably moving from the hinterland to more middle class and urban areas. So, yes, finally, after 60 years of independence, our roads might be built the right way and not by municipal corporators who ask for them to deliberately rot every monsoon so they can fund their kids’ overseas education through their share of maintenance contracts. And there will be some personal tax rate cuts to make people feel a wee bit better the morning after.

The futility comes because our budget is far less useful at effecting change than it used to be. A while ago we were an island economy, run by a bunch of Nehruvian planner appartichiks who believed, with unfortunate reason to do so, that they could shape the country. And shape the country they did, bringing it to the near-total state of ruin it was 20-odd years ago. Thankfully we started reaching out to and becoming part of the world economy a few decades ago, and today we’re far more prone to global vagaries than those cooked up in the Finance Minister’s office.

Most entrepreneurs are quite disconnected from the effects of the Budget, or government policy-making in general. It’s a non-event in the startup and venture world. According to conventional wisdom, weighty policy pronouncements and the politics of policy-making are considered more relevant for industrialists and established businesses, rather than a startup striving to build products, revenue and market share.

And nothing could be farther from the truth. India’s economy is still heavily shackled by state control despite the liberalization efforts of Prime Ministers P.V. Narasimha Rao and Atal Bihari Vajpayee. We are still far, far away from a true market system, which means that the government wields enormous clout in the economy. Though the effects of the Budget and accompanying policy might not be directly tangible to entrepreneurs, what the finance minister says and does can provide valuable clues to future opportunities.

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Produced by an expert panel of well known Indian entrepreneurs and investors, Alok Mittal, Mahesh Murthy, Dhruv Shringi, Sanjeev Bikchandani, Sanjay Anandaram, Varun Sahni and Rajeev Mantri, India Chief Mentor provides answers to key start-up challenges - whether building a business plan, scaling operations or seeking the right kind of funding. Write to paul.beckett@wsj.com with any feedback or ideas that you might have.